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Does KiwiSaver Make Sense if You’re Self-Employed?

KiwiSaver tends to be an afterthought for sole traders, freelancers and contractors, but it has its advantages, writes David Copson, Head of Growth at Booster.

11 September 2023

When you’re busy running a small business it can feel like KiwiSaver is a hassle you just don’t need. With no employee contributions to boost your savings, is there any point in locking away money that you could put into your business or pay off your mortgage?

Investing in KiwiSaver has benefits beyond the employer contributions, so it’s worth thinking about carefully. There are more than 400,000 one-person (zero employee) businesses in Aotearoa, making up 71 per cent of our businesses, according to MBIE, so this affects a big chunk of our workforce.

The obvious benefit

The big benefit for self-employed KiwiSaver members is obvious: you put in $1,042.86 over the year and receive $521.43 from the government. This is effectively a 50 per cent return. If you do nothing else, get this contribution as an absolute minimum.

Because there’s an annual cut-off date and it can take a few days to process payments, it’s best to pay the money in over the year rather than trying to remember to make an annual one-off payment. Paying in $21 a week (or $87 a month) ensures you get the maximum contribution.

A free $521 a year might feel like a drop in the bucket, but it can add up to a surprising sum. Start in a KiwiSaver balanced fund at age 35, and your $1,042 plus the government contribution could grow to around $107,000* by the time you’re 65.

It's easy to sign up

Research by IRD and the Financial Services Council shows that self-employed New Zealanders are less likely to be enrolled in KiwiSaver. While employees are now automatically enrolled, if you're self-employed it's also easy to become a member. You can sign up with any provider directly, and using a fund finder can help you choose the right type of KiwiSaver fund for your situation.

Locked-away savings

Self-employed Kiwis often prioritise spending on their businesses, and the idea of locking money away until you’re 65 can seem like a major drawback. But that drawback can also be an advantage. It’s the “pay yourself first” principle and it can help grow your wealth faster.

You might be thinking, “My business is my retirement fund”, and I hope that works out brilliantly. But as recent years have illustrated, you just never know what’s around the corner; a major event could put a big dent in your business income. If you pay yourself first, you'll make sure you will have something put away for your retirement.

KiwiSaver diversification

The small business owner is usually 100 per cent committed to the business. It’s natural to give your business everything so it thrives and brings you a good income. KiwiSaver can give you diversification, beyond your business, so you’re exposed to more types of businesses and industries around the world. This helps reduce your risk while you build your wealth.

How much should you put in?

If you’re considering investing in KiwiSaver, you can start at the $21 a week that will secure the maximum government contribution, then increase it to $50 a week and see how that goes. As your business grows keep reviewing annually to see if you can afford to increase your contributions.

Alternatively, you could treat yourself like an employee. For instance:

Income: $100,000

Three per cent “employer” plus 3 per cent personal contribution: $6,000

Payment into KiwiSaver: $116 a week

Keep investing

It’s natural to be nervous about locking away money, so if you’re really reluctant to put more than the minimum into KiwiSaver, look for a similar managed fund that gives you the same diversification, but you can take your money out at any time.

*not adjusted for inflation (sorted.co.nz/tools/kiwisaver-calculator)

This article provides general commentary only and is not, and is not intended to be, financial advice as defined in the Financial Markets Conduct Act 2013. It does not fully consider your personal financial situation or goals, does not recommend a particular investment product, and is not a substitute for obtaining financial advice from a Financial Advice Provider.

Booster Investment Management Limited is the issuer of the Booster KiwiSaver Scheme. Product Disclosure Statements are available at www.booster.co.nz

Informed Investor's content comes from sources that Informed Investor magazine considers accurate, but we do not guarantee its accuracy. Charts in Informed Investor are visually indicative, not exact. The content of Informed Investor is intended as general information only, and you use it at your own risk.


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